Grassley Q & A

May 26, 2010

Q. The Congressional Budget Office (CBO) recently sent a letter providing an analysis of additional costs of the health care reform enacted this year. How are there already higher costs?

A. The earlier March CBO score did not include estimates of all discretionary spending in the new law. This spending falls into three main categories: start up costs for the government agencies that will carry out the new regulations; the cost of new programs that have a specified cost; and the cost of new programs that don't have a specified cost. Specified costs refer to specific dollar amounts authorized or appropriated in the bill, like the $6 billion for health insurance co-operatives. Other programs, like the National Oral Health Surveillance System, do not have a specified cost and it is up to Congress to determine how much funding to provide the program.

Q. How do these three categories affect the overall cost estimate?

A. The first category includes how much it will cost for government agencies to implement the new requirements in the health reform law. That includes the Internal Revenue Service (IRS) which will spend an estimated $5 billion to $10 billion from 2010 to 2019 and the Department of Health and Human Services (HHS), which will spend another $5 billion to $10 billion from 2010 to 2019. These amounts are in addition to current funding levels.

The second category includes costs for the new grant programs and other federal spending specifically authorized in the law. In this second category, the estimated costs are $105 billion from 2010 to 2019. There is a third category for new federal grants and other programs where the spending amount is not limited to any specific authorization level so there is no way to predict how much these programs will ultimately cost. For this third category, the CBO could not offer a cost estimate so there are additional future costs that still are not factored in. When the first two categories are added in, the estimated total cost for health care reform increases by at least $115 billion by 2019. That amount does not include the unknown future costs for programs in the third category.

Other costs in the bill include costs to Social Security for future Social Security benefits, for which $29 billion in payroll taxes are generated according to the CBO, and future costs of the CLASS Act long term care program, for which $70 billion in dedicated premiums will be collected under the new law. When these costs are factored in, it becomes obvious that, rather than reduce the deficit by $124 billion, this law will actually increase the deficit by $90 billion.

Q. What's the impact of the new spending?

A. Most Americans will face higher taxes under the new health care law, compared to the few Americans who will benefit from the government subsidy for health insurance. For example, in 2019, for every middle-class family who will benefit from the subsidy to help pay for health insurance, roughly five middle-class families will pay higher taxes as a result of high-premium excise tax, the medical expense deduction limitation and/or the additional Medicare payroll tax rate. The cost to these families and the number of families affected grows if you factor in the fees on health insurance companies and medical device makers, which the Congressional Budget Office has said will be passed on to consumers through higher premiums. Additionally, Medicare is cut by more than half a trillion dollars to fund a separate, new entitlement program, and millions of seniors will see their Medicare Advantage benefits cut. While the new $2.6 trillion law dramatically increases government spending and the government's role in health care, it doesn't do much to reduce rising health costs and, according to non-partisan experts, insurance premiums will be driven even higher by the new health care reform law. Congress also failed to include malpractice reform and should repeal the new taxes and hidden fees that will drive up costs.